MUMBAI (Commodity Online): The Reserve Bank of India has increased Cash Reserve Ratio by 0.75 basis points from 5% to 5.75 buyt has left the repo rate and reverse repo rate unchanged in its Third Quarter Review of Monetary Policy review for 2009-10 unveiled on Friday. The CRR hike is likely to be implemented in two stages beginning February 13. Analysts pointed out that CRR hike would dampen inflationary expectations.RBI has also indicated that inflation might rise to 8.5%
Bank Rate :The Bank Rate has been retained at 6.0 per cent.
Repo Rate : The repo rate under the Liquidity Adjustment Facility (LAF) has been retained at 4.75 per cent.
Reverse Repo Rate :The reverse repo rate under the LAF has been retained at 3.25 per cent.
Cash Reserve Ratio
RBI has decided to increase the cash reserve ratio (CRR) of scheduled banks by 75 basis points from 5.0 per cent to 5.75 per cent of their net demand and time liabilities (NDTL) in two stages; the first stage of increase of 50 basis points will be effective the fortnight beginning February 13, 2010, followed by the next stage of increase of 25 basis points effective the fortnight beginning February 27, 2010.
As a result of the increase in the CRR, about Rs. 36,000 crore of excess liquidity will be absorbed from the system.
The Reserve Bank will continue to monitor macroeconomic conditions, particularly the price situation closely and take further action as warranted.
Expected Outcomes
The expected outcomes of the actions are:
(i)Reduction in excess liquidity will help anchor inflationary expectations.
(ii)The recovery process will be supported without compromising price stability.
(iii)The calibrated exit will align policy instruments with the current and evolving state of the economy.
